Book Review - 7 Powers and How I'm Using Them for My Businesses

All right, so today we're gonna talk about The 7 Powers and how they can apply to your business and how everyone should be thinking about The 7 Powers. So I actually have the book right here, okay? And usually what I do is I put the dog ears on the bottom if there is, there's like a helpful insight and there's actually a lot of dog ears in here, so that's a good thing. The 7 Powers, it's a book written by Hamilton Helmer, right? And I'll pull this up on my screen over here. And this article's written by former Leveling Up podcast guest, Sachin Rikhi. Hamilton actually, this guy actually has invested in companies like Netflix. And so the 7 powers, when we think about strategy, strategy is the map for you to get to where you're trying to go. Tactics are kind of like what you need to do along the way. When you think about the 7 powers in terms of business strategy, it's like, okay, well, if I just focus on these 7 things, we're gonna have a big advantage over other people. And so, you know, I wanna apply this kind of in the context of the things that I'm doing right now, because I'm also making this for the Leveling Up team. Leveling Up as an organization, You know, we, when we think about the different businesses that we're trying to buy or whatever it is that we're trying to build, ideally they have at least 1 or 2 aspects of the 7 powers. Ideally all 7 would be perfect, right? You have scale economies, network economies, counterpositioning, switching costs. You have branding, cornered resource, and process power. So let's focus on the first one, scale economies. When you think about an e-commerce company, the more units that you order, the more favorable pricing terms that you get. So as you start to produce more, your pricing actually becomes more efficient. Or it could be you have a software business and as you sell more units, well, it's not like you're having to hire a bunch of new people. That's why a lot of people love software businesses because it's recurring revenue and you have economies of scale. And so the next one over here would be network effects. So, or network economies. So in Silicon Valley, you call them network effects. Right here, they're citing LinkedIn. But if you think about Facebook, if you think about Instagram, if you think about YouTube, the network becomes more valuable as more users start to use it. Right? And that's why in the very beginning, it's— we're talking about how, or when you think about a network effects business, it's a winner-takes-all type of thing, right? And you have to acquire as many users as possible, and then ideally you have to hold their attention as well to keep them as part of the network. Because if you think about it, you know, MySpace has failed, Friendster, they failed as well. A lot of social media networks have failed. So network effects, I mean, why has Facebook been so dominant over the years? There's a reason for it, right? And that's why they're valued so highly as well. The third one would be counter positioning. So, in in the case of counter positioning, Vanguard when they first launched as kind of the this low cost index fund, they were competing against a lot of mutual funds, right? And they were kind of counter positioning, saying, "Hey, like you know we're not gonna actively manage your money, but you know we're just gonna track the index." And then more and more people started going to it. In the beginning, everyone was like, "Oh, this is not gonna work," right? And all the incumbents were like, "This idea will never work." They dismissed it. It's too risky for their business as well. Because their business is working so well at the moment. Why would they ever switch, right? So the incumbents, it's too risky for them. And that gives the kind of the new entrant an opportunity to, to kind of step in and take over. Number 4 over here would be switching costs. So when you think about buying software like Salesforce or HubSpot, like a CRM, you start inputting more and more data over the years. You use it more and more and more. And what tends to happen is, well, You're pretty locked in. It's not as easy to switch over to a new CRM, like all the integrations you've added, all the setup time you spent, all the training you've done. It's not easy to switch over. So you might as well just stay. Right. Um, and you know, if, if a customer threatens to leave, you say, hey, I'll just give you more favorable pricing terms. Right. Um, that's actually a lot more attractive than them having to explore a brand new solution. Branding is something that takes a long time to build. If you want to think about luxury goods such as Hermès or Louis Vuitton, they built the brand up over the years. They're this luxury brand. Mercedes-Benz is an example as well. They're using Tiffany's jewelry here. And they maintain that premium positioning. You can destroy the brand very quickly, but it takes years and years, a very long time to build up that brand. All right, cornered resource is Pixar is a good example because all of the films that they've done, especially maybe the first 15 or 20 or so, were rated so highly, but it was the same people that were kind of directing it, right? They had that special magic. So the cornered resource in this case would be the talent. Another cornered resource might be, hey, if you have all the rights to, um, I don't know, lumber in the United States, that's a cornered resource, right? Finally, last but not least, would be process power. So a good example of this would be Toyota. Their entire process, which involves Kanban, all this other stuff, it's all merged together where they made their vehicle manufacturing very, very efficient. You know, over the years, people tried to emulate them, but it's— they've developed— it took them, you know, 50+ years to get this process right. And it's just, it's not easy to copy the process, right? So if you're able to duplicate a process very easily, that's not necessarily process power, right? Okay. When we think about economies of scale, so let's use the agency Single Grain as an example. As an agency, if all we're doing is signing people to retainers and for every retainer, let's say we charge you $1,000 or 15% and then you just keep doing that. But yet every time you close new clients, you're going to have to think about, you know, adding a percentage of new employees, right? Because you need more people to manage the, um, the marketing campaigns. And so it's hard to achieve economies of scale there. Now when we do marketing for people, we want to do pay for performance. So that's a lot more lucrative and incentives are a lot more aligned because Instead of saying, hey, you're going to pay us like a, like a management fee each month and we're just going to maintain the account for you. Now it's you pay us only when we perform. And you know, if we perform, we're just going to keep driving more and more leads and it just keeps scaling up and you have one person focused on it instead of trying to sign a bunch of new clients, right? So you're focused on, you know, maybe a handful of clients and you don't need that many clients. And then you do have economies of scale because I do have people that run, you know, friends that run these, these, um, pay-for-performance agencies doing, you know, $2.6 million per employee, right? Instead of, you know, $150,000 or $200,000 per employee. Um, and so it's just a lot more efficient that way. If we were to build a social network, you know, more and more people would have to use it, become more valuable. That's great. What can we do then? We can build a marketing community. So with the Marketing School Podcast, we can— we built Marketing School Pro. If we add more and more users to it and the community is actually good, then the network will get stronger and stronger. And then we can do other stuff with the network. We can, You know, do special events for them. We can ask them, you know, what they want and deliver on the promise, right? So I think a community does have a network effects type of type of effect on it. Network effects effect. And then number three would be counter positioning. So kind of similar to number one here, we talk about economies of scale, but counter positioning saying, "Hey, look, we're not going to be a traditional agency." You know, in some cases we might have like some traditional agency clients, but we're going to try to go for pay for performance, and that's the counter positioning aspect. So most agencies aren't willing to do that because maybe. It's too risky for them. If you're big like Omnicom and you're doing, you know, a billion-plus revenue a year, you know, it's too risky for you to try this, this, this business model, right, with pay-for-performance. So that is counter-positioning. Number 4 would be switching costs. So let's go back to the agency example. So with Single Grain, it might be very easy to switch out. Let's say we do a really good job for you running your ads for a year. If we're doing a really good job and your ad spend's increasing, increasing, our price is increasing, increasing, you're actually incentivized to get rid of us, right? You wanna make it where switching costs are, well, it's not attractive to actually try to move off of us, right? So, if we did a pay-for-performance thing, there's kind of a switching cost aspect built into it. But if we layer on other relevant services, we make switching costs more difficult. If we layer on like really strong relationship on top of it, we start adding in all these goodies, it's much harder to just say, hey, we're gonna switch over. Branding. You know, with this whole leveling up movement over here, had to pull the book up. Long-term, we're trying to build a movement, we're trying to build a brand around it. And I know that's not gonna be done in a year, not 2 years, not 5 years, not 10 years. We're gonna just keep going and we have to live it. That's why the whole organization is called Leveling Up. Ultimately, we want to help level the world up and then part of how— what I'm good at, what I understand is building a really good marketing team, everything kind of trickles down, right? I'm not saying the marketing stuff is the end-all be-all, but it's just what I happen to know. And then we can, you know, add on a bunch of people to the team that are good at— they're good at the other areas. Branding, typically tied more to consumer type stuff, which is great for Leveling Up because it's more geared towards consumers. But, you know, it's harder to say you have a premium brand when it comes to B2B. But when you have a consumer brand and you're like, you're the Tesla, you're the Mercedes, or you're the SpaceX, right? That tells a little bit of a different story. So, but just keep in mind, branding takes a very long time to develop. Cornered resource, you know, for us, part of it's going to be how do we hire the best people? If we're doing an education division, who's actually done it before? How can we hire those people? How can we hire the absolute best team over there for the people that have performed at a very high level? That's a little shaky, I would say. That's somewhat of a cornered resource. But it's not quite like Pixar where it's like they had 10 or 20 hits, right? A corner resource would be, let's say we have specific data, okay? So with the software that we're building, we're gonna have a lot of data and that is a corner resource because that's unique to us because the users running— I mean, we're not sharing it with the internet, right? So that is unique to us. Now, last but not least, when it comes to process power, like Toyota, it's gonna take a very long time to develop the proper training process for leveling up because we want to take people from zero To not only job ready but to become leadership ready as well and eventually running their own things within our organization or even starting their own things. That's going to be a thing that is going to require a lot of tender loving care and something that, you know, can't be like a second or third priority. I mean, if we want to get that right, we're going to have to develop that over the years and have that be a very high priority. And so, you know, the process has got to be unique. Our training process has to be so unique that everyone in the world wants to emulate it. But it's too hard to emulate. So imagine if we're able to build an organization where we say, hey, you know what, if you're good enough, like, we'll get you up to leader and we'll have you running one of our divisions, and you're gonna be doing really well for yourself, really well for your family, and, um, that's gonna be remarkable. I, I think it's great, right? I think education is gonna be disrupted. So to have that process, um, I mean, that's something I'm really excited about. So let me know what you think in the comments about this. Um, let me know if you plan on reading a book like Seven Powers. Don't forget to hit the subscribe and the bell button if you enjoyed this video, and don't forget to check out the next video over there, and we'll see you tomorrow. Bye.